Uranium stocks tumble after RBC takes axe to price forecasts

Uranium miners have offered a very consistent message to investors over the past couple of years: The short-term outlook is bad, but don’t worry, a lot more uranium is going to be needed down the road.

RBC Capital Markets Analysts agree. Only they think it will be a much longer road than most.

Analysts Fraser Phillips and Patrick Morton on Thursday sent shudders through the industry as they took an axe to their uranium price forecasts. They cut their 2014 spot price forecast to US$31.50 a pound, down from US$45. And it got worse from there. The 2015 target was cut to US$40 (from US$60), and targets for the 2016 to 2018 period fell to just US$40-US$45 from US$75-US$80.

The analysts believe the uranium market is going to be in surplus until 2021, which is far longer than most insiders expect. They blame continuing oversupply in the market.

“Active annual supply exceeds demand by a significant margin, and on top of that, significant excess inventories have been and continue to be accumulated post the Fukushima disaster, particularly in Japan,” they said in a note.

It is no secret the uranium market is under pressure. The sector is still reeling from the Fukushima disaster in 2011, and approvals for Japanese reactor restarts are taking longer than expected. The spot uranium price recently fell below US$30 a pound for the first time since 2005.

Uranium miners claim the supply surplus should disappear in the coming years as nuclear power demand increases. There are currently 73 reactors under construction around the world, according to the World Nuclear Association, including 29 in China alone.

The miners also point out that a Russian agreement to supply commercial uranium from dismantled nuclear reactors ended in December. That removed more than 20 million pounds of annual supply from a market that only produces about 140 million pounds a year, helping to bring it into balance.

But the RBC analysts pointed out that mine production has continued to grow during the past two years despite low prices, and that the Japanese restart process has stalled. They believe only four Japanese reactors will restart this year, and just 28 (out of 50) will be online by 2018.

Despite the negative report, the analysts share the industry’s optimism that uranium prices need to rise over the longer term, as they believe supply will lag well behind demand by the middle of next decade. Their price forecasts are also still well above the current spot price of US$28.25.

But 2021 is an awfully long time for investors to wait for the surplus to disappear. If the Japanese restarts take longer than expected, the analysts warned the surplus could last even longer.

Plenty of people disagree with RBC. Robert Gill, a portfolio manager at Lincluden Asset Management, thinks the uranium surplus will actually disappear this year before returning later in the decade.

“Even if [RBC] is right, they’re calling for a razor-thin [surplus] this year and that is going to boost the price of uranium,” he said. “I’ve seen other estimates that say demand is significantly outstripping supply.”

Investing Videos

Promoted by iShares by Blackrock

Active Investor was produced by Postmedia's advertising department in collaboration with iShares by BlackRock to promote awareness of this topic for commercial purposes. Postmedia's editorial departments had no involvement in the creation of this content.